Cisco Systems focus of Russian bribery probe

By Steve Johnson sjohnson@mercurynews.com

Posted:
03/31/2014 12:57:51 PM PDT

Updated:
03/31/2014 01:11:16 PM PDT

SAN JOSE -- Computer networking and communications giant Cisco Systems is at the center of a probe involving allegations that some of its workers bribed Russian officials to bolster its sales in that country.

In a report Sunday about the allegations, online news site BuzzFeed said the San Jose corporation is being investigated by the U.S. Justice Department and Securities and Exchange Commission.

But that assertion is countered by a Feb. 20 regulatory filing by Cisco, which said it is conducting the probe "at the request" of the two federal agencies.

Officials with the SEC and Justice Department declined to comment.

Cisco's filing said it is looking into "possible violations of the U.S. Foreign Corrupt Practices Act involving business activities of the company's operations in Russia and certain of the Commonwealth of Independent States, and by certain resellers of the company's products in those countries."

Cisco's filing also said it "takes any such allegations very seriously and is fully cooperating with and sharing the results of its investigation with the commission and the department," adding that the matter is not expected to have "a material adverse effect" on its finances or operations.

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In a statement to this newspaper Monday, Cisco added that "we take our responsibilities as a global business seriously and are committed to compliance with the laws of every country where we do business. We have rigorous training and standards in place to help ensure that our employees and partners comply with those laws and investigate any allegation that laws have been violated."

The company said it has hired international law firm WilmerHale to conduct its investigation.

Citing what it said were "two former Cisco insiders," BuzzFeed said the bribes were kickbacks "built into the large discounts Cisco gave certain middleman distributors that were well-connected in Russia. The size of the discounts are head-turning, usually 35 percent to 40 percent, but sometimes as high as 68 percent off the list price."

It added that "instead of discounting equipment in the normal way, by lowering the price, parts of the discounts were often structured as rebates: Cisco sent money back to the middlemen after a sale. Some intermediaries were so close to the Russian companies and government agencies -- Cisco's end customers -- that these intermediaries functioned as their agents."

The middlemen companies, BuzzFeed said, "would direct the rebate money to be sent to bank accounts in offshore havens such as Cyprus, the British Virgin Islands or Bermuda."

Although BuzzFeed said the former Cisco employees didn't know who controlled the offshore accounts, it said one of the employees claimed the intent of the rebates "was to make sure they were able to stimulate, materially stimulate," people working for the government entities.

Although Cisco's filing said the countries involved in the investigation collectively comprise less than 2 percent of its revenue, Russia represents a growing market for the company. In its most recent annual report, Cisco said its year-over-year product sales in Russia increased 11 percent in 2013 and 15 percent in 2012.